Federal Reserve asset purchase program will not end soon
During the FOMC meeting on Wednesday, Federal Reserve representatives reiterated the continuation of the asset purchase program, effectively saying that this is not going to end any time soon. Investors are seeing this as having the potential for a renewed asset bubble. With Gold experiencing support on the 200 period moving average, technical traders view this as reinforcing their purchase of precious metals mining stocks.
To anyone who harbored the misguided notion that the Federal Reserve might slow its heady pace of securities purchases next year—when vaccines stop the spread of Covid-19 and the economy returns to something approaching normalcy—cross that off your 2021 worry list.
The Federal Open Market Committee stated Wednesday that it will continue to buy “at least” $80 billion of Treasuries and $40 billion of agency mortgage-backed securities “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”
If that sounds ambiguous, you’re right. It “provides the Committee with substantial flexibility to determine the appropriate time to begin tapering at a later date,” observed Goldman Sachs economists in a client note. In other words, the Fed isn’t bound to start reducing its bond buying at a certain date or when its forecasts for inflation and unemployment show those targets
It appears as though the prediction is for no change until at least 2023:
By contrast, the Fed now wants to allow inflation to rise above its 2% target before tapering its purchases, which its current forecasts don’t see happening until 2023.
This video by CNBC discusses this and is well worth watching:
The trickle down effect of this has been a continued rise in the broad index stock market.
The Fed’s overall securities purchases also have been a big factor in lifting stock valuations. When asked about it at his postmeeting presser, Powell admitted price/earnings multiples are high but said that the risk premium to hold equities wasn’t excessive compared with the level of the 10-year Treasury yield. As if the latter were a market-determined variable.
Conclusion
The continued monetary easing has resulted in a rise in commodity prices, with many commodities including Iron Ore, Gold and Copper rising as a result. Purchasing TSXV listed mining stocks is a great way to trade this.
A great mining microcap to purchase, and one we are very bullish on is Tocvan Ventures(CSE:TOC). Their amazing geology and historical drill results are showing strong signs of a bonanza grade Gold deposit. Tocvan is currently undergoing a drill program on their Pilar property, have strengthened their board, and with adjacent mines with similar geology fast-tracking to production, this is an excellent stock to buy on the cheap right now. The stock is worth over $1.53, and currently trades at a mere $0.40.